Freight rates in May fall but transporters defer fleet expansion plans

Customers pay less after six months for but transport companies feel the pinch of inflation.

Freight rates on key routes in May fell for the first time in six months, as transporters pass on the benefit of reduced fuel prices to customers. The cheaper rates came on the back of the government cutting excise duty on diesel and petrol, according to Crisil’s freight Index (CRISFrex).

However, inflation influenced consumer spending across segments to dent freight volumes and transpoters' earnings. It also made transporters defer on buying new trucks.

Truck rentals on key routes dropped by 5-6 per cent, said Indian Foundation of Transport Research & Training (IFTRT) in a note on Wednesday.

“The fleet utilisation during the month was flat on-month. While utilisation for market load was higher, it was offset by slightly lower utilisation for parcel/loose goods, mining (largely coal and iron ore), and agri-products,” said Hemal N Thakkar, director--Crisil Research, in the note.

Commodities like auto-carriers, container applications, packaged goods and consumer durables, steel, textile, and petroleum tankers saw flattish trajectory in utilisation, said the note.

The lower fleet utilisation impacted transporters' free cash flow. It contracted marginally by 100 basis points to 18 per cent in May from 19 per cent in April.

In a bid to rein in inflation, the government announced on May 21 a reduction in excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 per litre. This was to avoid increases in fuel prices that were necessitated due to the surge in international oil prices.

Vineet Aggarwal, managing director at Transport Corporation of India (TCI), as fuel is not part of the Goods and Services Tax (GST) transport companies and consumers would have to absorbing the cost of the indirect tax. “Till the time we can’t use fuel as input credit and offset it, the costs will not change dramatically,” he said.

The drop in freight from trade, commerce and industry has weighed on sales of medium and heavy commercial vehicles, wrote S.P Singh, senior fellow, IFTRT.  “There is hardly any fleet expansion in the freight market and the demand is mostly being led by CNG-run intermediary commercial vehicles (ICVs),” wrote Singh.

The drop in freight from trade, commerce and industry has weighed on sales of medium and heavy commercial vehicles, wrote S.P Singh, senior fellow, IFTRT. There is hardly any fleet expansion in the freight market and the demand is mostly being led by CNG-run intermediary commercial vehicles (ICVs). The month on month sales trend of medium and heavy commercial vehicles reflects the trend.  M&HCV sales of Tata Motors for instance saw a dip –8409 units in May compared to 8489 units in April. Most of the other manufacturers either saw sales rise marginally or drop month on month.